Efficient Strategies for Procurement Savings in HSE's Presentation

HSE Procurement Presentation to 2ndMeeting of Productivity and Savings Taskforce 1stFebruary 2024 Prepared by: HSE CFO v1.0 31/01/2024

1. 1. Sourcing and Contracting Sourcing and Contracting - - Areas for Savings 2024 Areas for Savings 2024 1.1 Price reductions secured: 12.8m 1.1 Price reductions secured: 12.8m These contracts have already been finalised or are in final stages => low risk (see below). Row Labels Row Labels 2024 2024 DRUGS & MEDICINES DRUGS & MEDICINES 1,421,776 95,042 6,393,309 40,019 1,772,613 2,500 128,374 2,929,467 53,685 12,836,785.62 LABORATORY SERVICES EQP & CONSUMABLES LABORATORY SERVICES EQP & CONSUMABLES M&S SUPPLIES M&S SUPPLIES OFFICE SERVICES & CONSUMABLES OFFICE SERVICES & CONSUMABLES PROFESSIONAL & OTHER SERVICES PROFESSIONAL & OTHER SERVICES TRAINING & DEVELOPMENT TRAINING & DEVELOPMENT TRANSPORT & TRAVEL TRANSPORT & TRAVEL VACCINES VACCINES WASTE MANAGEMENT WASTE MANAGEMENT Grand Total Grand Total 12.8m is a price reduction (cash releasing) rather than cost avoidance i.e. estimated costs of these contracts in 2024 is 12.8m below the estimated cost in 2023 of what they are replacing. 1.2 Key to further price reductions (cash releasing) or cost avoidance in 2024 1.2 Key to further price reductions (cash releasing) or cost avoidance in 2024 The process to put in place contracts by HSE sourcing or OGP, through competitive and / or negotiated processes and then ensuring compliance compliance with those contracts, is how HSE will secure savings in 2024. Our sourcing teams and OGP seek to secure the Most Economically Advantageous Terms (MEAT best value). The HSE s 1st Corporate Procurement Plan 2023-2026 includes targets to improve SUM to 75% in 2023 and 85% in 2024: As per the December 2023 Board Strategic Scorecard the 75% target was achieved in 2023 The 2024 workplan requires: 470 contracts with an annual value of c. 1bn which are expiring to be replaced (to maintain 75% SUM) A further c. 400- 450m in contracts to be put in place to bridge the 10% gap from 75% to 85% by end 2024 See graph 1 below

Graph 1: SUM Performance KPI The estimated annual value of contracts in place is dynamic i.e. contracts are continuously expiring and must be replaced to stand still in SUM terms and further contracts are required above those expiries to increase SUM. See below re estimation and data limitations. Note: I. Increase Spend Under Management (SUM) i.e. goods and services that are on a formal Contract or a formal arrangement with all terms agreed the estimated proportion of addressable / procurable spend that is covered includes c. 1.3bn in general non-health specific spend that OGP colleagues are potentially able to assist with. II. The estimated annual value of such formal contracts / arrangements is expressed as a percentage of the Addressable Spend (Estimated spend on goods and services that is covered under procurement rules i.e. can be impacted through procurement and sourcing activities)

Compliance with those contracts Compliance with those contracts It s one thing to have 75% / 85% of your estimated addressable spend covered by contracts or formal arrangements, however, to truly achieve 75%- 85% SUM we need to be assured that those contracts and formal arrangements are actually being utilised i.e. compliance. HSE Procurement (Compliance and Planning) co-ordinates (since 2020) a guided, IT supported process of annual self-assessment of whether all payments over 25,000 are competitive and / or compliant with public procurement requirements . While it is a self-assessment exercise, the process and the PACT system that supports it includes, for example, a requirement for those completing it to understand, have, and retain for potential review, the specific evidence necessary to justify their assessment. The outcomes are also subject to a random sampling and validation by an external party. Note key limitation re 25,000 threshold i.e. represents c.50% of spend. Compliance levels reported via this process have improved from: Engagement and level of returns 87% in 2021 increased to 92% in 2022 Closing date for 2023 returns 18/2/24 Compliance Level 91% in 2021 and 93% in 2022. => non-compliance of 9% 9% and 7% 7% respectively. Table 1: Non-Compliance summary: 2023 not complete and level of returns dipped in Q3 so need to await full year 2024 exercise (will be complete before end March 2024). NB NB there has been a substantial improvement in terms of early engagement with our procurement teams because of the compliance effort as reflected in the increase from 1% to 57% between 2021 and 2022 in the level of non- compliant assessments where a tender / regularisation process is underway. Same comment as above re 2023 being WIP and therefore too early to draw conclusions.

Focus for savings 2024 Focus for savings 2024 Push up compliance while also increasing estimated SUM Push up compliance while also increasing estimated SUM In effect this will provide assurance that more and more of our addressable non-pay spend in 2024 is being put through contracts or arrangements that were put in place via transparent and competitive processes and should secure best price available that meets our overall requirements. Table 1a: Compliance summary: 2023 not complete and level of returns dipped in Q3 so need to await full year 2024 exercise (will be complete before end March 2024). As per Table 1, estimated compliance is up from 91% in 2021 to 93% in 2022 but it is also worth noting the shift in the compliance reasons, particularly towards Central managed compliant procedure and away from Urgency which was used significantly during COVID. Lower COVID related spend, particularly in PPE, accounts for a large element of the fall in spend between 2021 and 2022.

General / Other areas for 2024 General / Other areas for 2024 OGP OGP We have completed an initial assessment our usage of the OGP frameworks. OGP have extensive arrangements in place for common categories across the public sector including Catering, Patient transport, Cleaning, Vehicles etc. A follow-on desktop exercise to review the existing 95 frameworks and stratify them into the following will be scoped and planned: I. II. Frameworks HSE currently is using assess potential to broaden HSE usage Frameworks not currently being used which are not relevant to HSE requirements or are due to expire shortly (e.g. some are very specific to a particular sub-sets of goods / services not relevant to HSE ignore for now but see future working arrangements below Frameworks not currently being used which potentially meet HSE requirements engage with OGP on next steps Frameworks that duplicate contracts / arrangements HSE already has in place ignore for now but see future working arrangements below III. IV. It is noted that the OGP Categories cut across all or most of the HSE s 5 high level categories meaning that there is no single team within HSE Procurement Sourcing and Contracting that is dedicated to dealing with OGP including maximising our use of relevant existing OGP frameworks and also effectively and efficiently influencing the next set of frameworks. Consideration is currently being given to how best to deal with this issue. Data and Limitations Data and Limitations Pending the completion of the full roll out of IFMS, there will continue to be a level of manual work and estimation with related risk related to: I. Figures used to estimate the current and likely future level of spend on any new contract (numerator in SUM) II. Estimation of Addressable spend (denominator in SUM) III. The current quarterly and Annual compliance assessment process In relation to I and II IFMS facilitates the move towards 100% of non-pay spend being assigned to unique material codes and service codes which will provide a much more definitive basis for future procurement planning efforts. In relation to III, IFMS will facilitate ordering from contracts or formal arrangements and the related expenditure being able to be readily tracked to and reported against those contracts. This will eventually mean our currently quarterly self-assessment exercise can be largely automated as the system will be able to report compliance.